Large Gas Reserve Found
Oil and Natural Gas Corporation (ONGC) struck a large gas reserve in the Krishna-Godavari basin, off the Andhra coast and north-west of the gigantic gas find reported by the Reliance-Niko combine in 2002.

Preliminary estimates indicate the presence of over one TCF (trillion cubic feet) of gas, making it the second big find for ONGC after Vasai near Mumbai.

However, it is small compared to the 14 TCF reserves reported by the Reliance-Niko combine but is equal to another find reported in the region by Cairn Energy of the UK. The actual reserves are likely to be ascertained by April.

ONGC’s find comes within a week of Cairn striking oil in Rajasthan’s Barmer district. It redeems ONGC’s reputation, which had taken a beating as it did not match the recent successes notched by its private rivals.

With the find, the East Coast will be well on its way to replace the West Coast as the country’s gas supplier and take care of the needs of a gas-deficit eastern region.

Besides, ONGC’s gas find will further reduce India’s urgency to import gas from Bangladesh, a proposal hanging fire for years owing to Dhaka’s unwillingness to clear the political passage.

The gas find in the Krishna-Godavari region was in November and ONGC wanted to announce it in its advertisement campaign released on Republic Day.

But it refrained from doing so as it could not complete laboratory tests of the earth dug up by its drilling ship, Sagar Vijay, from the sea bed.

The ship struck gas at depths of 1,580-1,720 metres below the sea bed. It is supposed to drill up to depths of 2,500 metres, when more gas is expected. ONGC, has about a dozen exploration blocks in the Krishna-Godavari basin.

Investments in Karnataka & Tamil Nadu
ONGC has drawn a multi-billion dollar investment plan for Karnataka and Tamil Nadu. This includes setting up of a 5 million ton per annum (mtpa) LNG re-gassification terminal and a petrochemical complex at Mangalore, laying a overland pipeline from Mangalore (Karnataka) on the west coast to Ennore (Chennai) on the east coast along with setting up of two LNG-based mega power projects, one each in Tamil Nadu and Karnataka as joint venture projects with the respective state governments.

Developing mega power projects will also mark ONGC entry into power generation. Details of the plans have been spelt out by ONGC chairman and managing director Subir Raha, in a letter to vice chairman of the board and chairman, marketing committee, RasGas Company Limited, Qatar, Dr Ibrahim Ibrahim.

In the first phase, ONGC is keen to import 5 mtpa of LNG at New Mangalore, a modern all-weather port on the west coast in Karnataka. Within two to three years, it plans to step-up the LNG supplies from Qatar to 7.5 mtpa. Towards this, ONGC would construct appropriate berthing facilities besides a re-gassification terminal at Mangalore.

At Mangalore, ONGC plans to set up a plant for extraction of C2+ components (ethane, propane, butane) along with a cracker unit for extracting ethylene and polyethylene and finally integrating it with a downstream plant for manufacturing polymers. It then proposes to construct a mega power project in collaboration with Karnataka Power Corporation Limited (KPCL).

Says Dr Ibrahim, “RasGas is well positioned to supply ONGC’s needs and we look forward to doing business with ONGC. We have enough supplies to meet requirements of Indian companies,” he said.

However, in order to assure a smooth progression, RasGas has told ONGC that it would like to fully understand the end-consumer demand and credit supply aspects of the supply proposals, right at the entry stage. RasGas has also sought an assurance on whether “ONGC is prepared to progress its plans on an exclusive basis with RasGas”.

“ONGC is working on a plan to double its investment for deep water explorations from $6 billion to $12 billion,” —Subir Raha, Chairman & Managing Director, ONGC.

RasGas is already supplying LNG to Petronet LNG Limited (PLL), for its 5 mtpa LNG terminal at Dahej, whose capacity is being expanded to 10 mtpa in the next few years.

On the pricing front, ONGC has asked RasGas to take the agreed pricing for PLL at Dahej along with the agreements executed between PLL and RasGas-II (company building LNG-3 and LNG-4 trains), as the benchmark for the proposed contracts with ONGC. The landed price of RasGas’s LNG at Dahej is $2.53 per million British thermal units (btu).

Out of the 5 mtpa of imported LNG, ONGC has projected a demand of around 3 mtpa of LNG in Mangalore itself. Around 1.0 mtpa has been projected for extraction of C2+ components (ethane, propane, butane), 1.5 mtpa for power generation and 0.5 mtpa as a fuel for its subsidiary Mangalore Refineries and Petrochemicals Limited (MRPL). ONGC has also projected a 0.5 mtpa demand for Mangalore Fertlizers and Chemicals Limited and 0.2 mtpa at a privately owned floating power plant in Mangalore.

After extracting the C2+ components from the rich LNG at Mangalore, ONGC plans to transport the balance lean gas through a overland pipeline to Ennore on the east coast to feed a mega power plant (using 2 mtpa of LNG).

Rs.16,000-cr Investments
ONGC has reserves of more than $1 billion. ONGC invested Rs.16,200 crore on its upstream business for the financial year 2003-04, 47 per cent higher than the Rs 11,000 crore invested last year.

Of this, around Rs.5,700 crore was spent on oil exploration, production and development drilling within India and Rs.6,200 crore earmarked for investment in oil equity abroad. The balance would be for other capital investments and for Research and Development expenditure.

ONGC Videsh Ltd, the subsidiary of ONGC, expects revenue realization of $30 to 40 million from the sale of gas from Vietnam where it holds equity. The company also holds oil equity in Sakhalin oilfields in Russia and is trying to acquire oil equity in Libya, Myanmar, Kazakhstan, said Mr Atul Chandra, Managing Director, OVL.

In the refining sector, the company is investing Rs. 400-500 crore on product improvement to upgrade its manufacturing facilities to produce MS and HSD conforming to Bharat III and Bharat IV standards and Rs 250 crore on de-bottlenecking at its newly acquired 9 million-tonne Mangalore Refinery.

"We are subsidizing our joint venture partners (private sector and multinational companies), direct customers and even distributing companies Gail India and Oil India to the tune of Rs 1300-1500 crore,” Raha claimed.

Speaking about ONGC’s plans for retailing transport fuels petrol and diesel, Mr Raha said the company would set up a retail network of over 1,100 outlets over the next three to five years. Only a couple of retail outlets will be put up in the current financial year.

ONGC’s Mega Plans for Next Fiscal
The Corporation plans to invest Rs 10,000 crore on exploration and development of its domestic oil and gas properties during 2004-05.

“We currently plan to spend approximately Rs.10,000 crore on capital expenditure relating to the exploration and development of our domestic oil and gas properties during fiscal 2005,” ONGC said in its draft prospectus filed with Securities and Exchange Board of India.

In one of the biggest Initial Public Offer in the country, about 14.2 crore equity shares of the exploration major would be offered in lots of 10 with a view to attract retail investors, for whom 25 per cent of the offer size has been reserved.

The company planned to spend Rs 3,500 crore on capital expenditure relating to current overseas exploration and development activities of its overseas arm ONGC Videsh Ltd (OVL).

ONGC also intends to implement a number of advanced recovery technologies to redevelop its maturing fields and improve recovery of crude oil reserves, with a goal of substantially increase its current average recovery rates.

These measures include the greater use of extended-reach horizontal drilling, side tracks, in-fill drilling, water injection and other advanced techniques, as well as technologies using chemical and thermal methods to enhance oil recovery.

ONGC also plans to spend about Rs 957.1 crore on oil field redevelopment programs and improved and enhanced oil recovery projects through fiscal 2007 rates. It would also spend around Rs 7,880 crore during this period on the redevelopment of Mumbai High, its largest producing oilfield.

Of the 142,593,399 equity shares being offered through the bookbuilding route, 10 per cent have been reserved for the employees of the company and employees of its subsidiary firms like MRPL and OVL while 25 per cent shares will be allotted to retail investors, highly places company source said here.

About 45 per cent of the shares on offer have been reserved for Qualified Institutional Buyers (QIBs) while the remaining will be for non-institutional buyers.

New LNG Terminal for Myanmar Gas
Country’s fourth LNG terminal to transport gas from Myanmar through pipelines via the northern states is in the offing. This was disclosed by the union petroleum secretary, B K Chaturvedi at the Second Asia Gas Buyers’ Summit in Mumbai.

Consortium between ONGC Videsh Ltd and Gas Authority of India Ltd, working along with Korean companies in Myanmar, had reported a gas strike estimated to contain 5 tcf.

Charturvedi also disclosed that the gas from the LNG terminal at Dahej in Gujarat would add about one-third to the total availability in the country while the second terminal at Hazira would add about 8-10 standard cubic metres (SCM) of gas.

Even by the conservative six per cent GDP growth, the total demand for gas in the country would touch about 300 SCM.

To make LNG affordable, the government has brought down the rate of interest to eight per cent from 14 per cent and cost of transportation to 30-32 cents from 45-50 cents, Chaturvedi, said adding, the cost for regassification was brought down to 45 cents from 50-55 cents and would be reduced further. The costs, he said, would come down further after the Dahej plant’s capacity is augmented to 7.5-10 mt from the present five mt and the reduction of duty on import of capital equipment.

ONGC Videsh Ltd is discussing the possibility of conducting gas exploration in Iran. The government was discussing a package to bring in five million tons of LNG from Iran.

ONGC plans to invest $12 b in exploration activities.
The oil PSU has appointed a consultant for its branding strategy on setting up about 1,100 retails outlets in the country and the report will be submitted in 9 months.

The Oil & Natural Gas Corporation (ONGC) is working on a plan to double its investment for deep water explorations from $6 billion to $12 billion, the oil PSU chairman, Subir Raha

The Fortune 500 exploration and production company which has been working on a branding strategy for its retail foray in the downstream sector, has lined up Rs.60,000 crore for investment in the next 15 years to improve its recovery rate.

The oil PSU plans to match the international standards of 40 per cent by 2020 from the present level of 28 per cent. “Currently, we are investing around Rs.12,000 crore while the total investment required to hike the recovery rate is in the region of Rs.60,000 crore,” quips Raha.

Stressing that it is technology that matters, the ONGC chairman pointed out that they have some fields where the recovery rate is as high as 55 per cent. The company, he claimed, is at par with international leaders in equipment, software and hardware.

“The present investment (around a billion dollar) is meant for acquiring technology for drilling up to 8 km from the surface,” Raha said.

The company has already launched 30 Sagar Samriddhi projects capable of exploring depths up to 2,700 metres.

Referring to its branding strategy, he said that ONGC would be setting up about 1,100 retail outlets across the country in the next few years.

To a query on whether the company has plans for a different logo or signage for retail outlets, Raha said “all possibilities are being looked into.” But since the licence has been granted to ONGC, the company has perforce to retain the existing brand name.

According to him, besides the existing four players, others might enter the segment and ONGC will have to chart out how to position itself in this scenario.

Asked how ONGC likes to source products for marketing in regions other than south where the company has a refining facility through the acquisition of Mangalore Refinery and Petrochemicals Limited (MRPL), Raha said it would go for product exchange arrangements with existing leaders like Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL).

ONGC’s LPG Plant at Dahej
ONGC plans to set up a gas extraction plant at Dahej in Gujarat at an investment of Rs.900 crore to produce LPG from liquefied natural gas (LNG). Chairman Subir Raha said the project will beef up the company’s bottom-line.
“The board has already approved the project and work will start soon,” Raha said adding that the project will be completed in the next two years.

The Dahej terminal, promoted by Petronet LNG, will be fully operational in the next financial year and will have a capacity of five million tons.

Petronet LNG is a joint venture in which, besides ONGC, Indian Oil, Gail, BPCL, Gaz de France and ADB are partners. The first consignment of LNG — around 140,000 million cubic metres — reached Dahej recently.

“While the other partners in Petronet LNG like Gail, Indian Oil and Bharat Petroleum will market the imported LNG, we will have the right to extract LPG and petrochem feedstock from the LNG,” Raha says.

ONGC plans to go with the project on its own and the investment would be funded through internal accruals. Once production starts, ONGC will have to pay 15 cents per ton as royalty to Petronet LNG.

Mumbai-Uran Pipelines Being Replaced
The Oil and Natural Gas Corporation (ONGC), after 25 years of bringing in oil and gas to Mumbai shores, has decided to replace the ageing offshore Mumbai-Uran truck pipelines at an estimated Rs 3,000 crore.

ONGC expects to award the work next month with a completion schedule in May 2005, which includes installation, hook-up and commissioning of the pipeline.

The existing pipeline was installed in 1978 by Brown & Root International Ltd. An ONGC spokesperson said: “These lines have to be replaced within their designed life of 25 years and accordingly are due for replacement.”

The ageing pipeline had started giving signals to ONGC for sometime now, the latest being in the form of a leakage on August 10 last year.

The corporation averted a major disaster when it shutdown operations at the pipeline following a leakage. The leaking pipeline linked Mumbai High North oilfield to Uran.

The shutdown resulted in ONGC’s production being hit temporarily although the corporation diverted crude oil through ICP-Heera pipeline route.

ONGC is investing in replacing these pipeline as it brings in about 90 per cent of its total oil and gas production from the Bombay High fields and contributes almost 70 per cent to ONGC’s revenues.

The tender floated by ONGC includes a 30-inch diameter oil and 28 inch gas pipeline systems along with about 100 km of feeder lines of different sizes connecting the various Bombay High offshore installations with Uran shore terminal.

Besides, the feeder lines of different sizes, ONGC is also modifying associated platforms and modifying 8 such platforms in addition to installation of pumps at NQ platform.

Leases Six Small Oilfields
ONGC has leased out six of its 93 small oilfields, expected to add about three million tons of crude to its total output of 26 million tons a year.

Three onshore oilfields in Gujarat have been leased to Prize Petroleum, while Assam Company has got three fields in Assam. The 93 small oil and gas fields are estimated to contain up to 200 million tons of oil and 132 billion cubic metres of gas. These are old discoveries and have comparatively small reserves and make it financially unviable for ONGC to develop. The induction of private operators will allow the development of these fields at low cost and keep the overheads low.

Under the lease agreement, the third parties would be responsible for conducting all assessment, development and production activities. However, ONGC will retain the ownership of the fields as well as the right to sell or use the output from the fields. The contracted operator would be paid service charges.

Industry sources saw a deal with a minimum of around $ 5 per barrel for ONGC.

In the first lot, 18 onshore oil and gas fields, spread over Andhra Pradesh, Tamil Nadu, Rajasthan, Assam and Gujarat, were identified. To encourage Indian entrepreneurs, in line with the discussions held with Confederation of Indian Industries, expressions of interest were invited from Indian companies.

After a pre-bid conference with the interested firms, bids were invited for 16 fields. Nineteen Indian companies purchased the documents but only 14 actually submitted bids for 13 fields. Multiple bids were received for eight cases and for the remaining five only single bids were received.

No award has been given for the gas fields as the bids received were either non-responsive or commercially non-attractive.

2.5 Lakh Ton Crude Oil from K-G Basin
ONGC aims at producing 1,950 million metric standard cubic meters (MMSCM) of natural gas and 2.5 lakh tons (lt) of crude oil from its Krishna-Godavari basin fields this fiscal.

The corporation registered a 13 per cent growth in natural gas production and 6 per cent growth in crude oil production during the last fiscal, recording a 31 per cent growth in revenue earnings when compared to the preceding year.

In 2002-2003, K-G basin produced 2,008 MMSCM of natural gas and 3 lakh tonnes of crude oil, earning a revenue of Rs.771.53 crore as against Rs.586.27 crore in 2001-02.

The corporation has fixed lower targets this fiscal than the actual production in the last fiscal. The corporation produced 1,306 MMSCM of gas and 1.96 Lac tons of crude oil through the K-G basin wells till November-end of last year.

At present, ONGC is producing these gas and oil reserves from about 100 wells.

“The corporation has set up 15 platforms to bring out these oil and gas stocks from these 100 wells. At present, ONGC is operating eight rigs in the K-G basin. In June, 2003, seven rigs were moved from the old sites to new drill sites. In December, the remaining E-1400-17 rig too was shifted from the drill site to the new drill site,” Raha said. Gas Authority of India Limited (GAIL) has been taking the gas from ONGC and supplying it to the local industries.

The crude oil produced in the K-G basin is being utilising by the ONGC-owned mini refinery in the Konaseema area.

The Retail Opportunity
Analysts expect the major benefit in oil and gas sector will come from retailing of petro-products and not refining, where the margins will be fluctuating. This is on account of the fact that in refining a lot depends upon the price of crude oil, which is prone to wide fluctuations. Thus, it is not surprising to find companies queuing up to invest here. Already, four corporates have been given the right to enter the field of petro marketing. These include Reliance Industries (5,900 outlets), Essar (1,700 outlets), ONGC (650 outlets) and Numaligarh Refineries (510 outlets). However, these figures are causing concern in the industry.

Existing public sector companies have a network of 18,560 pumps and have plans to add 2,100 more in the next three years. The worry is that this rise could end up resulting in a problem of plenty. Existing players are also on a branding spree in order to differentiate their outlets and add more value to their already functioning ones. This has led to the introduction of different grades of fuel in the market - BPCL’s variant ‘Speed’ for example.

But all is not smooth on the ground level and there could be a problem coming the way of the oil companies. The National Highway Authority of India (NHAI) believes that a large number of accidents on highways take place because of vehicles coming out of pumps. New guidelines, which would require relocation of these outlets away from the highway, would result in a cost for the companies.

Oil companies have had mixed experiences post-APM. On the one hand, the good news has been that the oil pool account has been dismantled with the result that 80 percent of the outstanding amounting to Rs 9,000 crore has been paid off to the oil companies in the form of bonds. The remaining part of the oil pool will be settled after an audit by the CAG.

At the same time, the bad news is that on the ground, things are changing very slowly post-APM. Oil companies did not raise product prices in spite of crude oil prices soaring in international markets. Now it has been decided that prices will be revised every fortnight while the duty structure on oil products will be reviewed every quarter.

The biggest factor, which will spark off all the action in the coming days, will be the proposed disinvestments of the oil majors. The overall disinvestment process has already seen the case of IBP, which was acquired by Indian Oil Corporation (IOC).

The real action will come when the other refining majors like BPCL and HPCL hit the disinvestments trail. The exact timing and methodology remains under a cloud with the petroleum minister not too keen on relinquishing control. At the same time, there is likely to be some action on the primary market front as many of these companies have shown their inclination to take centre stage here. This will no doubt provide fuel for the markets in the days to come.

Oil Hunt at 4 Offshore Sites
ONGC has decided to drill four exploratory wells in the Bengal offshore block by the end of 2004. This represents a marked escalation of the oil exploration efforts of the company.

The cost of the exercise has been pegged at Rs.280-300 crore. ONGC had invested Rs.170 crore prior to this to collect seismic data.

Earlier, the project was to be taken up in two phases. The first phase envisaged drilling one well in 2003, with drilling of three more to be taken up in the second phase. ONGC had floated tender for a rig which could work in shallow water and drill the single well envisaged in the first phase.

Rig chartering companies can work on better economies of scale under the revised 4-rig tender. The deployment period for shifting of the rig from one location to other would be less, resulting in savings and mkaing the process cost-competitive.

Companies bidding for the revised tender could also bring more than one rig to take up drilling of exploratory wells simultaneously or within a stipulated time. ONGC would take on lease at least one berth at Kidderpore Dock from Kolkata Port Trust (KoPT) for moving supply vessels to the selected location, which was just 60 kilometre south from the dock complex.

The draft at the drill locations on river Hooghly was a shade above 5m, making exploration a very challenging proposition. The Bengal offshore block was awarded to ONGC under NELP-2. One factor which would work to the advantage ONGC was the comprehensive two and three dimensional (2D and 3D) seismic data for the region now available with the company.

When ONGC last called for bids, data for entire region could not be provided as compilation for the entire area had not been completed. The company spent Rs.170 crore for acquiring data for the region. ONGC used the ocean bottom cable technology for gathering the data and the collected information has already been processed.

It was now being interpreted following which four locations would be precisely identified. Due to heavy sedimentation in the riverbed, collecting data was a tough job as cables were often lost.

The intervening monsoon made matters worse. Since the specialised cables were very expensive, it added to the cost as well.
Onland drilling soon The exploratory work for Bengal onland block near Contai in Midnapur district would begin soon. ONGC has started moving one rig from the central region of India to the location.

The monsoon had held up the shifting for a month. ONGC has built the approach road for moving heavy trucks to the location but the roads were damaged in the rain and too weak to take the load.